NEW POST: Price Is What You Pay; Value Is What You Get - Nifty Fifty Edition
fortunefinancialadvisors.com/blog/price-is-…
Starting valuation matters less over very long time frames, but it matters a lot shorter-term
fortunefinancialadvisors.com/blog/price-is-…
Starting valuation matters less over very long time frames, but it matters a lot shorter-term
Related, here's a great article from the archives of @jasonzweigwsj on the 1973-1974 market crash that crushed the Nifty Fifty.
jasonzweig.com/learning-from-…
jasonzweig.com/learning-from-…
Fascinating article by Jeremy Siegel who shows that the Nifty Fifty valuations were largely warranted, given their subsequent growth (very important if you pay a huge multiple up front!) aaii.com/journal/articl…
The lesson appears to be that paying up for growth makes sense only if you 1) have a very long time horizon, and 2) earnings growth materializes
Very cool article on what really constituted the "Nifty Fifty" h/t @NeckarValue
economics-files.pomona.edu/GarySmith/Nift…
economics-files.pomona.edu/GarySmith/Nift…
Incidentally, good in-depth analysis here by @ajb_powell on the Nifty Fifty ftalphaville.ft.com/2018/05/29/152…
For anyone who cares, I plotted starting excess valuation (earnings yield basis) for 25 Nifty Fifty stocks, and subsequent annualized total returns for the stocks for which I had data. Only 5 of the 25 outperformed a much cheaper broad market.
The other takeaway is that consumer staple and pharma stocks are probably better bets for super long-term investors than cyclicals, particularly - maybe especially - expensive ones.
A lot of people were surprised by the 10-year returns in this chart. In retrospect, we shouldn't be; as Vanguard has shown, TTM P/E has a pretty high R^2 with 10-year forward returns. personal.vanguard.com/pdf/s338.pdf
A good counter to this is from @John_Hempton, who wrote a great article on how valuation analysis can be detrimental to your portfolio if it means you miss out on great companies with tremendous growth potential brontecapital.blogspot.com/2017/01/valuat…
El mismo articulo, pero en Espanol (gracias a @a_martinoro)
